Dishman Carbogen Amcis Limited (DCAL) Earnings Call Transcript & Summary

[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arpit Vyas. Thank you, and over to you, sir.

Thank you, moderator. Thank you all for participating on this con call. It hasn't been too long since we met last, so there is nothing much to say apart from that things are moving in the right direction, as you can see from the numbers. And people, during these challenging times have and are working very, very hard. The challenge of the manpower is decreasing, but still not at the rate that what we would have liked, as these are still not normal, especially with the nation preparing for the third wave. In any case, one thing is for certain that the faith this management has put in the existing people remains unchallenged, which is now seen to frutify. With that, I would like to handover the call to Mark to give us a short update.

Thanks, Arpit. Good afternoon, everybody. I hope you all well. I hope your families are safe. So a few high points and then we can get into -- handing over to Harshil bhai. The market remains very strong. Very active. Inquiries continue to come in at a rate which is normal or above normal. As mobility opens up across the western world, we're starting to get request now for customer visits, audits, and we expect that to, frankly, explode across our global platforms in the next 3 to 6 months. As customers are able to travel, we're going to see more activity on the site. So that's going to happen. European operations continued to perform at a very high level. Gladly and very excitingly, the Indian operations is coming back on its feet rapidly. The changes that have been made over there are enabling us to bring on production units in a very smooth manner and start to address the concerns that our customers have had, and we are starting again to continue in market supply product. The late phase pipeline remains very strong. Notable there except that it's continuing to be strong. Some of our specific technology plays are really starting to see some traction. So ADCs, micro reactors, those sorts of things are really starting to gain some traction as well now. Also gladly, our commitment to R&D that we made a year-or-so ago is really starting to frutify now. We've talked before about calcifediol trials and Vitamin D analog trials. Those are now moving ahead for both U.S.A. and Asia in a number of indications. And our first real new project in infection control for years has just been kicked off with a highly respected University in Europe, where we're looking at using one of our compounds to generate what we like to call a super disinfectant. The 2 lead R&D projects in Holland for the Vitamin D technology platform are starting to really show some promise, and one of them actually goes into what we would call commercial piloting within the next 4 to 6 weeks, and we're very excited about that. The impact of COVID on Brexit, Brexit, specifically for Europe and our operations in sales out of the U.K., that continue to be a challenge, frankly speaking. I think we understand the challenge now. We understand the time and effort needed to ensure that deliveries and shipments are done properly. It requires a lot more preplanning, a lot more paperwork. Sadly, COVID and Brexit has only done one thing and that's the guarantee even more [ things ] will die. But we're able to manage the additional complexity and the time taken to do that. Now we understand the issues. Clearly, though, what we see as a reality is that, the cost of shipment moving products around the world, both internally and in the organization and externally to customers continues to be a more expensive proposition than it was 18 months, 2 years ago, pre-COVID. And that's something that we are managing with our customers, talking to them about the additional cost. And hopefully, we're making progress in convincing customers that there's going to need to be more money to cover the transportation cost. So finally, I'd like to give you a quick update on the expansion of RIOM, which is our French facility in Europe, where we are moving into a commercial scale manufacturer of parenteral sterile liquid drug. That project is on target, both from a capital and from a time schedule perspective. And the building is now completely constructive, and we're now commencing the fit-out insight. So with that, I look forward to some interesting questions, and I'm going to hand over to our CFO, Mr. Harshil Dalal. So over to you, Harshil bhai.

Thank you very much, Mark. Hello, everybody, a very good afternoon to everyone. As far as the financial results for the quarter are concerned, this was a stellar quarter for us on a consolidated basis, where we did a revenue of INR 550 crores, which is the highest ever that we have done in the first quarter of any financial year. This represents a growth of 16% as compared to the comparable quarter last year. The cost for the year -- for the quarter was at about 23%. The employee expenses showed an increase as compared to the comparable quarter last year, largely on account of increase in FTEs required for additional development projects coming out of Switzerland. The EBITDA for the quarter stood at INR 100 crores. This represents 18.3% as a percentage of the revenue as compared to 9% that we had last year. The depreciation and amortization was more or less equal to what we had in the comparable quarter last year. Finance cost stood at INR 12.3 crores as compared to INR 11.5 crores in the comparable quarter. All of this translated into a profit before tax of INR 24 crores and a profit after tax of INR 16 crores. The major contributories to the revenue were specifically speaking, 3 of them, as far as the growth in the revenue is concerned. One was CRAMS India, we did a -- which did a revenue of INR 32 crores as compared to INR 14 crores in the comparable quarter last year. So we are progressively seeing an increase in the CRAMS' revenue coming out of India, and which is a very good news. And this is directly related to the increase in the operations that we have seen out of the Bavla site. CRAMS UK did a revenue of INR 32 crores as compared to INR 25 crores in the comparable quarter. And CRAMS Switzerland, France and China put together stood at INR 320 crores as compared to INR 309 crores in the comparable quarter. So overall, the CRAMS contribution to the revenue was 70%, while that of marketable molecules was 30%. And usually, the CRAMS contribution is at around 75%. But the reason why the marketable molecules contribution is higher is because Carbogen Amcis BV had a fantastic quarter, where the revenues stood at INR 117 crores as compared to INR 72.8 crores in the comparable quarter, which represents an increase of 60%. So this was driven by the increase in sales of both cholesterol as well as Vitamin D analog that was manufactured out of Carbogen Amcis BV. On the margins front, Carbogen Amcis, Switzerland, France and China put together did an EBITDA margin of 19.3% as compared to 16.2% in the comparable quarter. So thus, we are -- thus we saw an increase in the EBITDA margin as well. CRAMS UK did a margin of 19.6% as compared to 15.3%. While Carbogen Amcis BV stood at 29.5% as compared to 32% in the comparable quarter. This is largely on account of higher share of cholesterol as compared to Vitamin D analogs in this particular quarter as compared to Q1 of FY '21. So during the year, we do expect an increased revenue of Vitamin D analogs in Netherlands as well. The capital expenditure for the quarter was approximately USD 12 million, which majorly includes the CapEx either Swiss and France side. So that's part of the overall capital expenditure that we are currently undertaking for the capacity expansion. The net debt, excluding lease liabilities, stood at $101 million, which is a similar level that we saw on June 30, 2021, as well as on March 31, 2021. So overall, this was a good quarter for us, and we do expect that we should see a similar kind of quarters in the current financial year, which would help us to increase our revenue substantially as compared to the last financial year, and this will also translate into higher margins. With that, I'd like to hand over the call to Mr. Sanjay Majmudar, our Independent Director.

Thanks, Harshil. Good afternoon, everyone. Well, as you can see, things are looking much better now. More importantly, as Mark and Harshil explained, Bavla site, I think almost 60% of it is now becoming operational. It has become operational in Q1. And I think in next couple of quarters, the operations at Bavla should restore to a -- almost the pre-EDQM levels in next 1 or 2 quarters, hopefully. And overall, I think this year would be much, much better than previous year, which I would say that overall, both from a growth standpoint as well as from EBITDA and profitability, which are reported. It should be definitely much, much better. And I think while it is a bit early for us to be clear in terms of where we should. I think we should end the year definitely at the topline of which showing some growth over the previous year and significant growth in bottom line with a positive EBITDA and the positive profitability. I think with this, moderator, let's throw the house open for Q&A.

[Operator Instructions] Your first question is from the line of Karan Khurana from [Monarch] AIS.

Two questions I had. I think I want to kind of get the management's color on the overall EBITDA margins going forward. And across the board, it seems like that CRAMS is apparently higher-margin business. So some color on that? And what is the management's plan to deleverage the balance sheet a little bit going forward? As it seems like we're highly leveraged as of right now.

Yes. So Karan, if I understood your question correctly, because you were not that audible. So one, you would like to understand on the EBITDA. And also something on the balance sheet.

Yes. Yes, please. The debt on the balance sheet as well as the margin profile in our CRAMS business, right? Because apparently, CRAMS essentially is a higher-margin business, right, so I wanted some color on that from the management.

Yes. So on the CRAMS side, we have essentially 2 parts to that particular business. One is the contract research and development part. And the second is the contract manufacturing services that we offer to the customers. So on the development side, our EBITDA margins would be the highest when the product gets into validation. While the preclinical Phase I, Phase II, the margins would be lower as compared to validation. So in validation is where we make our highest margins. Once the molecule gets into the commercial phase, that's on the manufacturing side, we might see some kind of a discounting offered to the customer because the quantities increase significantly. So -- but yes, I mean, still the margins remain much higher as compared to the preclinical Phase I, Phase II. So that's how the overall margins are split on the CRAMS side. Since the margins on validation and manufacturing services are higher. And since we have large-scale manufacturing assets in India, the EBITDA margins in India, which India essentially does bulk of the manufacturing, the margins are much higher as compared to our Swiss entity. So the right way to look at our margins would be to take a combination of all of the entities that are directly or indirectly engaged in the CRAMS business. So on the CRAMS side, our EBITDA margins would be roughly about, I would say, an average of 25% to 30%. While on the marketable molecule side, with the Vitamin D business doing exceedingly well for us. And if you see the margins of Netherlands over the last 4, 5 years, we have been doing an EBITDA margin of 30% plus. So overall, the CRAMS business, yes, it does a higher margin, but it's largely on the validation and commercial side. While even our Vitamin D business that we have out of the Netherlands that does an EBITDA margin of 30% plus.

So overall, just to add, I think in a normalized situation, not [indiscernible] this year, you can take our blended EBITDA margin of, say, from next year onwards around 25% to 26%.

That's on a consolidated basis, everything put together.

Okay. That's on the consolidated. Okay. Okay. And my second question was on the debt on our balance sheet, right? So what are our plans going forward? When it comes to deleveraging it, also that our bottom line could kind of essentially look a bit brighter?

So as far as the debt on the balance sheet is concerned, on a net debt basis, we are about $100 million. And the good thing for us is, all of our debt is denominated in foreign currency. And that is the reason the interest cost on the debt is quite low. So on one side, we have long-term and short-term loans, which are essentially used for CapEx and working capital, respectively. And on the other side, on the asset side, we have sizable amount of liquid investments as well as cash and cash equivalents. So the thought is that, rather than paying off the cheaper debt that we have on the balance sheet, we would rather make a positive return on the investments that we are holding on the asset side. But on a net debt basis, I think we are pretty much comfortable with a debt of anywhere between $100 million to $120 million.

Our next question is from the line of Sai Kumar, as an individual investor.

And I congratulate on a good set of numbers. I hope Dishman Carbogen will do much better from here and turn positive. So my question is on the API. 16 APIs are in the Phase III development. So when can we expect the commercialization of these molecules, roughly a timeframe? And what is the revenue potential from these 16 molecules?

Okay. The first one is easier to answer than the second one. What we've been consistent about is the run rate of converting validation or late phase into commercial is about 1.5 per year, per 18 months. And it normally takes a rolling program of 1 year or more to get something out of validation and into the commercial arena. So you start to see, this pipeline will start to frutify within the next -- well, it's already frutified. So the project we've talked about before the joint venture with the or the -- the co-investment with the Japanese customer. Well, we're still manufacturing that project, and we have started construction on the asset that will enable us to manufacture the commercial volumes. So that asset is going to be complete in the next year. And then we'll be into commercial volumes, which will be fairly significant based on what that forecast is. So beyond $20 million for that particular project -- that maturity. So nice projects. So that's the cycle in terms of timing. In terms of value, it's so difficult to say because API volumes are different for every API. Indications are different, scale is different. So we don't look at it as a blended number. We can't say that out of 16 APIs, the average value is going to be $5,000 a kilo or $50,000 a kilo. We have projects that are spread across the platform from projects that are maybe $1,000 a kilo right the way up to $60,000, $70,000, $100,000 a kilo. But $100,000 a kilo would be an agency, for example. So the volume is quite low, because the potency is quite high. So it is difficult to say. We can be more specific about individual projects.

Yes. And one more question is on the Vitamin D. So we just had an excellent growth on -- about 61%. So can we expect the same growth to be continuing in the coming quarters? Or else is this a drastic growth or onetime growth?

No. No. I think we've been consistent about the Vitamin D or the product business up in Holland, which is essentially where we run it from. And there are activities across the rest of the group, including significantly India as well. But that platform, if you like, of cholesterol and Vitamin D, they're linked together. And it's a product business. So we're not making custom products for people like we are in the rest of India or our Swiss facilities, for example. So these are products that we sell to the market. What we've seen is that by diversifying the way we sell, but also diversifying our customer base, we've been able to drive greater value. And we've been consistent about saying that with our strategy all the way through. We're now starting to see the outcome of the efforts of all of the time we've been pushing that. And as Harshil quite rightly says, the lumpiness that we will experience in this business is based on what we sell. So Vitamin D sales in 1 month might be higher than cholesterol sales. Cholesterol sales may be higher than Vitamin D in another month. What you can expect over a year is that those sorts of margins can be maintained. But looking at it from a monthly or a quarterly basis is challenging. What we have are our own metrics internally, but it's difficult to say because it's a business where we're selling to customers and customer delivery. They want deliveries at certain times, it's not in our hands. The important bit about that business, and I have given you more information than you asked for my apologies. But the important thing about that business is, that we are now investing significantly in research and development of new indications, new ideas, new concepts and new materials. And that's something that hasn't been done essentially since the acquisition of the business in 2007. So there's a real effort going on across Holland and India. With joint project teams working to develop new products, which will extend the sustainability of this business way beyond where we need to be. So we're very excited about that as well.

[Operator Instructions] The next question is from the line of Satish Bhatt from Anvil Share and Stock Broking.

Congratulations on a good set of numbers. Mark, this is question regarding you -- in your opening comments, you told you have started one project to the infection side with some -- you're doing a collaborative work with some European University. Can you throw some light on that? And after, I think what you got a good initial data of your Vitamin D regarding obese patients, what are the plans regarding taking that product further? And what are the timelines or the milestones which you have to further achieve it to make it a commercial success?

Satish, thank you for your questions. So the first one about infection control, what we've been looking at, and this is something that Arpit and I have been talking about for probably 18 months. Certainly, it came up as a big issue when COVID started to wear it's very ugly head. We have a product, which we've talked about in various discussions over the years. So it's not a secret. We have a product called Octenidine which was developed by Mr. Vyas Senior, Arpit's father a few years ago. And it's a tremendous product for bacterial -- bacteria side. So there aren't too many bacterias that can withstand Octenidine. What we've been doing in India is, we've been developing a process to encapsulate that product to extend its efficacy over time. So when you apply it on a surface, instead of the efficacy being a couple of hours, the encapsulation process, which our R&D team has developed, enables that effect to be longer. So we're excited about that as a product in itself. However, to really have a very effective product to surface cleanse and protect human beings, we also need to have a virucidal endpoint, and Octenidine doesn't have that. So what we've been looking at is internally is what are the materials have a virucidal effect as well. And if we can find the material that has a virucidal effect, how do we link it to our Octenidine encapsulation to create a single product, which is a super disinfectant, handling both viruses and bacterias. So we've now got some ideas. We've kind of tested those ideas with a world expert in the university in Central Europe. And we have just formalized the collaboration. So what would happen is they -- this professor in his laboratory, with his team, will be looking at characterizing what we have today and looking at screening various materials and we have a very short target list. And then what will happen is the Dishman Carbogen Amcis will bring those materials back in-house and create the overall manufacturing IP. We're in the very early stages. We only started talking to the university after Christmas, but we have signed a letter of [ intent ] there. And we're going to -- and we've given the go ahead. So that project has just started. Answering your second question. So we talked about the work we did in the U.S.A. with obesity patients. We have now agreed a program in the U.S. to look at a wider subset of obese patients. We've also, just this week, signed off a side project for calcifediol where we are looking at certain subsets of how that material is absorbed within certain bodily-generated molecules. I don't want to say too much because we do have competitors in this field. So we do need to be cautious about what we say. But that's been signed up today as well. The other exciting news is that, we reached a conclusion on Monday this week with an eminent Professor, who is going to start to look at now pulling together a clinical trial which we're going to perform in India, and we're looking at a certain subset of patients and a strategy there. And that follows on from our very small [Iranian] study that we carried out late last year. So progress, as we promised, is being made and agreements are being signed and formal commitments have been made. So those projects are ongoing, and we will be able to give you limited update bearing in mind that we don't want to alert the competition too much as to what we are doing.

Sir, you -- I think last time you -- whether early first set of calcifediol data was out. I think they were never expecting your data on COVID to be also be out. So are the data still out? Or still the data assumption is happening?

The data from Iran is out. And that has driven in a large part, our strategy for going to a wider population of patients.

Are you going to make that data public?

It will be made public at some point in a peer review journal. Not in a commercial journal, but in a peer review journal by the clinicians who ran that study. We have the data. So we've moved already.

[Operator Instructions] The next question is from the line of Naman Jain, as an individual Investor.

Congratulations for a good set of numbers for the company. Good improvement being seen on Q-on-Q basis. I have a couple of questions before which, just one clarification. In the opening remarks, Mr. Majmudar said that Bavla facility is about 60% up and running. So I'm presuming there's about 7 or 8 units out of the 13 that we have are already running?

That's right.

Okay. Okay. And so on the question front, one was that, I believe after commercialization of molecules, so we already have 7 molecules, which are approved in last 2, 3 years and a few more, which will keep getting approved over next few years. So the margins -- EBITDA margins are higher, upwards of 30%, 40%, if I'm not wrong. So the blended EBITDA margins for the company in next 3, 4, 5 years, shouldn't they be above 30% or so?

Yes, Naman. So that's our internal target to move, pause towards the 30%, and then let's see how things go. But yes, the target is to move towards 30% in the next 3 to 4 years' time.

And second question is in regards to co-investment opportunity that we are currently having with the Japanese customer. I think in the last call, you also spoke about similar opportunity with some U.K.-based customers. So how is it progressing?

That was the U.S. -- yes. It was a U.S.-based customer. Yes. And we've already -- they already co-invested with us 2 years ago, 2, 3 years ago to get their clinical trial supply material. And we did that project. We now have a further co-investment, which is now starting at our Hunzenschwil site in Switzerland, and that will enable us to manufacture their commercial volumes. So they're projected commercial volumes. We were going to make a press release on that one, but the customer is -- does not want to make a press release. So it is going forward.

Our next question is from the line of Dhruv Shah from Ambika Fincap.

This is Nishid Shah here. And congratulations on a good set of number. My question is broadly on a strategy that if you're are working on Vitamin D analog, which can substantially add value and margins also. And now we are working on the antiviral products as well as on anti-depression products. Would it be correct to say that, we will have a nonlinear growth in the future?

That's a really good question. I think our goal, if we talk about the corporate goal, which is something that, when Arpit came in and took over substantially running the business on a day-to-day basis. His goal was very clear that we need to diversify our business a bit more than we would have diversified. We are looking at various opportunities to strengthen our product pipeline. We recognize that if you have a product of need and you are the innovator, then you have much more control over the value generation of that project. When you do just service work, free for service here, a lot of what we do is under the control of the customer in terms of his growth, what he's doing with the project. So one of the strategies that are being laid down for the leadership team of the business is to look at our product portfolio, leverage as much as we can out of the current product portfolio, but also put more time and effort into R&D to use this big knowledge and the experience we have within our global scientific teams to generate new ideas, to generate new products. So what we will see, what we are -- our goal is that we are going to have a larger proportion than today of products in our business. That doesn't mean that the growth in the CRAMS business will be stunted. We're pushing both ends of it because CRAMS is our heartland. That's our core. But the product side of the business has tremendous opportunities, we believe. And what we're doing now is evaluating and pushing some of those. So you'll see a larger proportion of margin generation long-term from the product side of the business. And that diversifies the company, makes it more sustainable in the long-term because we don't know what's going to happen with the money markets. 2008 was a complete disaster for the pharmaceutical industry, with small-to-medium biotech being decimated with lack of venture money going in. We don't know if that's going to happen again. We can't predict it. What we can do is, we can set our business in the right way to have enough diversity, to expand it to like that and continue to grow the business. So that's really the global strategy of the company. I think is that fair to say, Arpit?

Absolutely. Mark, you said it spot on.

So that's the vision for the business going forward.

Yes. Go ahead, Mark.

So that's the vision of the business going forward. So you see with our remarks regarding R&D, by the end of this year, Harshil will be able to give all of you a picture of the increase in spend that we are promoting within our product business. And that should be seen as being a highly positive thing because with the product business, if you don't invest in R&D, sooner or later, your products become commoditized. And we were starting to see that happening. So we're not losing the good work that we've done in the past on our product business with the leveraging that, and we're putting more money in to take it even further. And I'm sure that at the close of this year, then we'll be able to give you a picture of a percentage spend of our accruals and what we're putting back into the business in terms of product R&D. But it is a clear strategy of the business. Absolutely clear strategy of goal.

So Mark, related question on the same, you have a large ADC expansion going on in Switzerland. You have an injectable new project, greenfield project going on, where you just mentioned in your opening remarks that the building has been constructed in the France. So that will also add value. You have a CRAMS pipeline, which is a very large and -- with a lot of cutting-edge products. And now you are also having these product-related strategies. When -- with what kind of company do you benchmark? Or are you the one and only right now globally? Or you benchmark...

No. We don't benchmark. Sorry, we don't benchmark against other companies. In the CRAMS side of the business, in the fee-for-service business, there are a number of competitors. And I've been consistent about this. We have some good competition out there. But there aren't many companies like Dishman Carbogen Amcis who have a geographical spread and technical capability that we have. There are companies there that do, but not many. In the product side of the business, in the Vitamin D side of the business, we have 2 competitor, okay. And those 2 competitors, one is European base, and they're very big, but they're also diversified. And we have a Chinese company that is heavily invested in the Vitamin D side of the business and some other things. So our competition strategy is very much dependent on our understanding of the market for each of the products or services that we are providing to the market. So it may sound like, it's a lot of activity, but it's not. We've been growing the CRAMS business for years, and we will never stop. I do want to correct one thing, though. We're not building a large-scale ADC facility. We're building more reactor capacity in Europe to address the pipeline we have. The ADC business, we are waiting. We built a facility, I think, 5 years ago, Harshil bhai?

Yes. About 5 to 6 years back.

Yes. We built a facility that enabled us to go to clinical Phase II or very small Phase III and commercial, very small. That facility is filling up, and we have one particular project for a German customer, which is very, very promising indeed. And validation is drawn to a close now on that one. We have a follow-up molecule from that customer, and we have another couple of projects that are waiting in the pipeline. So ADCs and doing the actual drug conjugate piece, which is linking the biologic to the synthetic chemical is something that we have invested in, and we are now looking at how successful and how positive that is, before we make the next step of investment, okay? So that's the only thing I wanted to correct you with. With the formulation business, we see real opportunity in doing the API and also being able to do the formulation. But again, it's focused on niche, difficult to do things. We're not going to go and compete with [ Patheon]. [ Patheon ] has been in the business a formulation for 40 years, and they have massive capacity everywhere. That's not where we're going to compete. We're competing in an area in the market where there is an unmet need. Company that's flexible, can handle really tricky products and can do it flexibly fast and quick and at a high level of quality. And that's where we know we can compete and recommend on.

Great. That's very useful, Mark. But my last question is, we have more than 25 products which have gone commercial. Are we seeing the follow-on commercial API manufacturing orders from those innovators, companies?

Yes. I think generally, we are. There's been 1 or 2 that have dropped off the radar, and we anticipate that in our forward planning anyway. So if we say we've got a pipeline of late Phase III and validation projects that are somewhere between 15 and 18. I do not expect all 15 and 18 to frutify in the next 5 years. I'm a realist. I know what happens in this industry. Things die, business changes. Our customers have their own competitors. So if a competitor of AstraZeneca brings out their product 6 months earlier, than the sales of AstraZeneca for that particular molecule, if it's a competing molecule, it is going to be critically damaged. So we always put a bit of a tolerance on it. So that's why we say, we've been consistent in saying, it's 1.5 or so every -- sort of 1.5 or 2 years. If it's better than that, we're happy. If it's on that line, we're also happy because that's what we predicted. And there's a tolerance of failure in there because, we know what the industry failure rates are. But we're familiar with, I should say -- I shouldn't say we know, I think we're familiar. So not all of them are going to be -- not all of them are going to be products and regardless of what customers forecasts are, a forecast of a product that hasn't been launched in the market yet, is just a number. Until you really are in the market, you just don't know, because uptake is different in different countries. The co-investment with the Japanese customer, at the moment, we're in discussions with them, and they're talking about different numbers. And they're different numbers positively. But again, the message is, they just don't know, that means, the message they're getting back from clinicians and getting back from the market. This product is going to be a real product of need, and they're looking at different indications of cancer now as well. So who knows? And that's the thing with a service business. You are in the hands of the customer from a marketing perspective. Once you're making the product, the customers marketing his own product. And that's why Arpit wants us to put more emphasis back on product as well. So that, that risk, which will always exist is mitigated somewhat by this organization using its skill and knowledge and experience in science to generate some of our own products, and we have more control over that and more predictability over it. So I suppose, in one way, what I would say is, we're listening to the investors. We're listening to the market where the market is asking us to put a plan together to make this business grow and be sustainable in the long term. And that's what the leadership in the business is doing.

[Operator Instructions] We have the next question from the line of Rajesh, as an individual investor.

Maybe a couple of questions from my side. One would be on your Bavla site. So how -- so when we would be seeing 100% operation in that particular site? And the second question would be on the European business. I think recently, Europe had proposed carbon border tax, given that most of your facilities are in Europe, so would you benefit from such kind of measure in the future?

So Rajesh, as far as the Bavla site is concerned, what we expect is that we should be back to 70% of the CRAMS' revenue that we were generating from Bavla during the course of the current financial year. And some of the units would be started progressively in the current financial year. Part of them would be started in the next financial year. So I think sometime during Q1 or Q2 of next year, we should start seeing Bavla back to the CRAMS revenue that it was generating in a normalized year.

I think on the other question you had, we're watching to see what's happening because, although we are in Europe, from a geographical perspective, from a political perspective, we are a bit more diversified than that. So the main part of the CRAMS service business at early phase and niche phases in Switzerland, which isn't part of the EU. And of course, then we have our facilities in France and Holland. So we're watching what's happening with that. But more importantly, what we're doing is we're looking at ways of being able to reduce the volumes of volatile organics by developing processes that don't need those volumes. We're also looking at techniques to be able to be more sustainable with our waste management. So -- and these are things that are ongoing projects, the thermal oxidization and things like that. And being able to get rid of our waste ourselves, but also to be able to generate heat and power from that waste. So again, creating virtuous circles of these things rather than taxes, which are essentially designed to encourage people to do cross-border stuff, frankly. But we are watching it, and we will never say never. But once policies are in place or a proposed for the Senate of the European Union, then we will develop our own strategies of how we manage that and how we address that.

Maybe a follow-up on Bavla site. So why it is taking so much time? Like I believe that most of the approvals have already come and why we are not able to scale it up to 100% as soon as possible?

So Rajesh, we have been visiting clearances from the customers on the CRAMS side. And we have received purchase orders that need to be serviced during the course of the current financial year. So essentially in Q3 and Q4, but the real ramp up for the full year revenue to get realized, it would be only in the next financial year. There are certain customers where we are yet to receive the clearance or we are still in the process of negotiating the commercial terms for the quantities that they require. Because what we have also done is that, we have gone back to certain customers, revised the pricing of the products that they want to source from us. Because there has been -- there will be an increased cost, where we would be kind of dedicating certain units or certain equipment to that particular customer. And hence, we have gone back to the customers with the revised costing and the revised selling price. So that process is going on right now as we speak. And the EDQM audit per se would be -- it would be sometime in the -- I would say, in Q1 of next financial year or in Q4 of the current financial year. Once we have all the upgradations that we wish to implement, that is already done to our satisfaction, then we can write to the EDQM to do a remote inspection or a physical inspection. Also, all of the units in Bavla, they are starting progressively. So last year, at this time, we had stopped operations completely. But then one after the other as we received clearances from these customers on the CRAMS side, we have been starting one of the other manufacturing unit out of that particular site. So right now, as we speak, we have about 6 units, which are up and running, and we would start another 2 to 3 units in the next 3 months or so. So it is a progressive thing. And in order to cater to these purchase orders that we have received, the cycle time to manufacture is a minimum of 3 to 4 months, if not more. So that is the reason we are staying conservatively during the course of the next financial year, maybe in the first or the second quarter, we should see the Bavla revenue equivalent to what we were doing in a normal year.

I think also, could I just add...

Sure.

That you shouldn't underestimate that a year ago, we had restructured the business. We had reduced our costs by reducing the number of staff. We were looking at changing the mix of our staff, a smaller number, but bringing in new people. And then COVID hit us and especially in India. It was absolutely nightmare trying to hire people because people couldn't travel. They couldn't come to the site to talk with their interviewers and things like that. And that hit, and that really hurt our timeline because this work can't be done by non-people. So that was something you couldn't anticipate, and that had hurt us. Now obviously, the situation is different now. And the rate of hiring has increased substantially as a result. But that's where our timeline. I think that's fair to say actually.

So should we assume that from here on, incrementally, we would see more improved performance quarter after quarter from Dishman, right?

Yes. Yes. That's certainly the intention. That's the goal, absolutely. Yes.

Okay. And maybe one more question from a strategic perspective, if I can ask. Given that a significant part of your operations are concentrated in the European market and the way we think, we are seeing the China Plus One policy. People are investing more and more in Indian operations. So how do we see this strategic -- should we say that we are on the negative side? So we are basically a bit more disadvantageous of having more expensive facilities in the European market than the people who are building operations in the Indian market?

No. 50% of what comes out of Switzerland goes directly to North American customers. So well, that was located in Switzerland, it's doing business across the world. So from a strategic reach, we're not concerned that we have any deficiencies from a strategic reach. And traditionally, Carbogen Amcis as an entity has always had a very high level of revenue and business flow from North America. That level has still remained. And what we've been able to do over the few years is to grow our European and Japanese business. So yes, we're not concerned about that at all. And I think we're strategically placed in India and, of course, in China. And the Chinese business, the facilities are in China are picking up very nicely. And China is starting to develop its own manufacturing culture, if you like, for innovation culture. So we're actually working right now with -- on pulling together a scope of a project with a Chinese innovator, and they're looking to develop and introduce a brand-new drug, not a metoo. And that's where Carbogen Amcis can play very nicely because, we have a non-compete with our customers promise. We don't have any issues about security of IP. Dishman Carbogen Amcis had a very strong track record in that over the -- since the foundation of the business, and customers know that. Customers know our position on IP. Other companies maybe are little more flexible with customers' IP. We're barely inflexible with customers' IP. It's all there, and those sorts of things. I don't -- I frankly don't see us as being at a disadvantage. If we were at a disadvantage anywhere, it might be that the North American facility at some point might be an advantage. But at the moment, we don't see the cost outweighing the advance of the cost benefiting it at the moment, unless a piece of technology came up. So no, we don't see that as a disadvantage at all. We really don't. I think the global spread and the integrated nature of our business can only benefit customers. They have lots of opportunity that quickly changes. And we had lots of opportunities, so. Yes.

See, I will add that actually, it's an advantage rather than it being a disadvantage because very few companies have similar situational plants very strategically located. In fact, all the relatively very high-value and low-volume products are even commercially manufactured in Switzerland. And then when the volumes go, there is a seamless technology transfer, where they can be migrated to India. So I think it's a wonderful combination. And we have the best of both the world's or rather all the world's, if I will say so in terms of opportunity.

Our next question is from the line of Praveen Jadav, as an investor.

I just wanted to know one answer, like, when will be the JV with the Japanese revenue start?

It's not a JV, it's a co-investment. So what they're doing, we're building a facility to enable them to reach their commercial volumes, and they are co-investing in that facility with us. So it's not a joint venture. We don't have a business relationship beyond them investing in the facility, and we're producing material. We already have generated, I think, Harshil, you may have to correct me here. But I think in this year, I think there's been $15 million, $20 million of revenue?

Yes, roughly about that much. You're right.

Yes. And that's the validation cost. And bear in mind, that this particular product, we manufacture pieces of it in China, we manufacture pieces of it in the U.K., and we manufacture pieces of it in Switzerland as well. So it's a really, really nice project for us because it utilizes assets across the platform. So commercial volumes or commercial revenues will start to look through towards the end of this fiscal year, but really kick in next year when the facility is completed.

Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Arpit Vyas for closing comments. Thank you, and over to you, sir.

Thanks, moderator, and thank you all for your wonderful and exciting questions. All your questions always help us to look at things in a different way and give us an insight of the kind of expectations that you would have in terms of the answers that we would be preparing and the information that we would be sharing. So please keep that up. It is truly great and honor for us to be answering all of those questions. And we hope that we are doing so at your full satisfaction. Thank you all.

Thank you.

Thank you very much.

Thank you very much.

Thank you, moderator.

Thank you, sir.